What is Forex Trading?
Forex Trading or Foreign Exchange is the world’s biggest active and financial marketplace where buying and selling currency pairs occurs worldwide. It is the most liquid and the most volatile market with a daily trading volume of $6.6 trillion and consists of more than 150 government-backed currencies and national currencies. Currency pairs traded here are the biggest currencies by volume quoted against each other- all involving the U.S Dollar. And if the U.S Dollar is not involved in the pairings, it is called a currency cross. Dominating currencies traded here include the U.S Dollar, the Euro, the Japanese Yen, and the British Pound.
What is Cryptocurrency?
Cryptocurrency is the trade of digital assets created by private individuals, groups, banks, and other groups. Their trade is not legal tender, and you cannot exchange goods and services for them like national currencies. To buy and sell cryptocurrencies in the real market, you will use a decentralized and encrypted system that ensures anonymity. Blockchain is a technology that regulates a finite supply and integrity of its, and you use it to make cryptocurrency transactions. In 2020, its daily trading volume was approximately $4,1 billion, declaring it two-thirds as large as forex trading. Bitcoin was the first and the largest traded digital cryptocurrency, launched in 2009.
Similarities between the Forex Trading and Cryptocurrency
You will need a trading account, the latest digital device, and a good internet connection to start your trading career in both markets. You can learn the basics of trading in another market if you have experience in one of these two markets. Both of them has fast execution rate and availability of charts to start with. The supply-demand balance runs both forex markets and crypto markets. Prices show a high surge in their rates when buyers surpass the sellers, and prices drop when sellers overwhelm buyers. When trading in crypto, you will use familiar indicators and chart patterns.
Key Differences between Forex Trading and Cryptocurrency
There is a vast list of differences between forex trading and cryptocurrency. Thus, we are going to discuss them one by one.
Trading Instruments
Seven currency pairs are traded in forex trading, including EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. Some traders trade in exotic currency pairs, including a big currency and the currency of a developing country like South Africa or Mexico.
On the other hand, there are more than 1100 registered cryptocurrencies, which is still increasing. Bitcoin and Ethereum are the two leading cryptocurrencies traded worldwide. You can choose multiple crypto instruments to make the trade, while in forex trading, you will have very low time for calm trading for a few days and weeks. Traders must choose a finite number of digital coins to track the maximum number of cryptocurrencies.
Liquidity of the Both Markets
Forex is the most liquid trading market, with a very huge daily trading volume of $6.6 trillion in 2020. You will have the freedom to buy and sell your chosen instrument without any slippage easily, irrespective of your position. This is a big advantage as you can trade at a price equal to or very close to the market cryptocurrencies; this for cryptocurrencies s not the case as the total trading volume of the crypto is less than $2 trillion, and Bitcoin makes up 45% of the market. No cryptocurrency is more active than Bitcoin, so that traders might face issues trading at their desired place.
Volatility Factor
Cryptocurrencies are more volatile than stable forex markets. Bitcoin, the world’s leading cryptocurrency, was at $29,000 at the beginning of this year, and the highest points were $65,000 before bouncing back to $45,000. Cryptocurrencies with low market value can make big moves in very short time frames.
However, there are rare cases of these types in the forex market with the exotic nature of currency pairs traded in the forex market. Thus, you can take and control risks in forex easily while you will have bigger profit potential in crypto trading.
Profit Potential of Both Markets
The Crypto market is flourishing at a very high pace as it offers high-sized profits in a short time, and with the increasing profit potential, the risk of scams also increases. Therefore, traders must prepare to take big risks while trading in cryptocurrencies. The reason behind this risk is that value of many digital coins can drift to zero if your project fails to fulfill your requirements. Conversely, trading forex is very profitable as you can increase your profit potential using leverage. Leverage is also risky as it is a double-edged sword, but proper risk management to choose an appropriate amount of leverage is wonderful.
Trading Hours
The Crypto market works 24 hours a day for an entire week, while the forex market remains active five days a week from Sunday night to Friday. Forex traders can enjoy their weekend; however, Crypto traders should always remain in touch with the market as the prices hike on weekends. Forex markets follow a regular pattern as big institutions regulate them. While in crypto trading, recently, some institutions have shown their activity to make it more reliable.
Security of Funds
The Crypto market is new compared to the forex market, and proper rules and regulations are under review in various countries. In crypto trading, you may face many risks like scams and hacking. According to reports, scammers have recently stolen $600 million in Poly Network. Conversely, the forex market is extremely regulated by regulated authorities having a low ratio of scams. However, forex traders must always check the reputation of the best Nasdaq brokers and the appropriate regulations of the registration country.
Which One to Choose from the Two?
To choose crypto and forex trading, traders must check their financial goals, available capital, trading tactics, and lifestyle demands. Trying your luck in the bot markets is the best way to choose from them. After a few months of experience, you can choose the best.
Conclusion
The forex market is the most active financial marketplace use to buy and sell currency pairs simultaneously; while, cryptocurrency is the trade of digital assets. In this article, we have made a comparison of the both. We hope you will choose the best one to start your trading career after reading this article.
